A ltd issued debentures of ₹3,40,000 in consideration of assets of ₹5,00,000 and liabilities of ₹1,00,000. The amount of ₹60,000 will be credited to which account?

Capital Reserve

The correct answer is option 1- Capital Reserve.

The amount of ₹60,000 will be credited to Capital Reserve.

Assets = Liabilities + Purchase consideration + Capital Reserve
5,00,000 = 1,00,000 + 3,40,000 + 60,000

In case of the whole business being taken over if the amount of debentures issued is more than the amount of the net assets taken over, the difference (excess) will be treated as value of goodwill and the same shall also be debited while passing the journal entry for the purchase of vendor’s business. But if it is the other way round, i.e., the value of debentures is less than the value of the net assets taken over the difference will be credited to capital Reserve account.